Nations Trust Bank PLC (NTB) reported robust financial performance in the three months to June (2Q21), albeit the momentum slowed in new loans while the margins were weighed down by the overall descent in interest rates and the regulatory caps imposed on certain products such as credit cards, in which the bank has a sizeable portfolio. 

The bank reported a net interest income of Rs.3.36 billion in the April-June quarter, up 16 percent from the same period last year, made possible by the faster decline in the interest expense than the decline in interest income, which was possible from a combination of reasons. 

The absence of interest reversals on loans, which qualified for the moratorium last year and the faster build up of low-cost deposits measured by the current and savings accounts portfolio, which rose from 28 percent to 37 percent in the year through June 2021, helped the bank to partially offset the decline in interest incomes, the bank said.  

Meanwhile, the deposits raised last year were also got repriced at low interest rates, further supporting the net interest incomes, a phenomenon that was common in the banking sector. 

However, the bank’s net interest margin – the difference between what the bank received from its loans and other financial assets and what the bank pays for deposits and other financial liabilities – narrowed to 3.79 percent, from 4.07 percent at the beginning of the year. 

This was partly because the interest cap imposed on the credit cards in August last year, where the interest chargeable on unsettled card balance was capped at 18 percent, from 28 percent. The impact on this move is more pronounced on NTB, as the bank has a sizeable card portfolio. 

The bank, with assets of Rs.361 billion, expanded its loan book by 12 percent or Rs.26.8 billion, of which Rs.6.4 billion was extended during the June quarter, reflecting the virus-induced slowdown in the bank’s momentum in the loan growth. 

While there was a sharp increase in the trade finance portfolio, followed by term loans and overdrafts, the credit card portfolio little moved and the lease portfolio contracted. The latter two, which typically fetch higher yields, could not perform, one due to interest rate ceiling and the second, due to vehicle import ban. 

The two portfolios together account for little over a quarter of the total loans and advances book of the bank. 
The bank however continued to improve its asset quality as measured by the gross non-performing loans ratio, which was reported at 5.73 percent by June-end, compared to 7.18 percent at the beginning of the year. 
The bank set aside Rs.669.1 million as provisions for possible loans and other losses during the quarter, up 45 percent in the same period last year. 

Reflecting its growth hunger, the bank raised a cumulative 17 billion in rupee equivalent during the first six months by a combination of foreign funding lines from the International Finance Corporation and FMO, the Dutch Entrepreneurial Development Bank and a Rs.4.0 billion raised in July via a rupee debenture. 

The bank also mobilised deposits worth of Rs.9.3 billion during the six months, of which Rs.1.7 billion came during the June quarter. 

The bank reported earnings of Rs.5.31 a share or Rs.1.51 billion for the April-June quarter, compared to Rs.2.80 a share or Rs.793.5 million in the year earlier period, logging a 90 percent increase. 

The earnings were supported by the lower tax rate, higher fee incomes and trading incomes. Fee incomes soared 88 percent to Rs.1.41 billion while the bank reported a trading gain of Rs.417.2 million from a loss last year, due to foreign exchange funding swaps and fixed income securities, as the rupee depreciated and interest rates declined, boding favourably on the bank.  For the six months ended in June, the bank reported earnings of Rs.11.65 a share or Rs.3.31 billion, up 89 percent, from Rs.6.17 a share or Rs.1.75 billion in the corresponding period last year. 

The John Keells group holds a 29.48 percent stake in NTB while Central Finance Company PLC together with its associated parties hold a 19.72 percent stake.